WEN

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended July 1, 2001, and the six-month period ended July 1, 2001, for Triarc Companies, Inc. (the parent company of Wendy's Co). The Company operates primarily as a restaurant franchisor (Arby's and Wendy's) and an investment holding company. A significant event affecting the reporting period was the October 25, 2000, sale of its beverage businesses (Snapple and Royal Crown) to Cadbury Schweppes, which are now reported as discontinued operations.

Key Financial Metrics

Note: The 2000 figures for discontinued operations reflect the reclassification of the beverage business results.

Material Changes vs. Prior Period

• Continuing Operations Profitability: Income from continuing operations decreased 27% to $9.2 million for the six months ended July 1, 2001, compared to $12.6 million in the prior year. This decline was driven by a 1,265% increase in interest expense (due to new Securitization Notes and tax liabilities) and a 3% increase in general and administrative expenses.
• Discontinued Operations: Net income was significantly boosted by $38.5 million in income from discontinued operations, primarily due to adjustments to the gain on the sale of the beverage businesses (Snapple/Royal Crown). In the prior year, this segment reported a loss of $5.3 million.
• Revenue Growth: Royalties and franchise fees from the restaurant business increased 8% to $43.6 million, driven by a net increase of 82 franchised restaurants and a 1.1% increase in same-store sales.
• Liquidity: Cash and cash equivalents decreased by approximately $193 million year-over-year, largely due to $381 million in tax payments related to the beverage sale, partially offset by $200 million in proceeds from Cadbury and $277 million in proceeds from Securitization Notes.

Guidance, Outlook, and Risks

• Outlook: Management anticipates continued royalty revenue growth in the second half of 2001 but projects a lower rate of increase compared to the first half. Positive cash flows from operations are expected for the remainder of the year.
• Capital Allocation: The Company has $666.5 million in cash and short-term investments. Management is evaluating options including business acquisitions and share repurchases. A $50 million stock repurchase program is authorized through January 2002.
• Debt Obligations: The Company has $281.7 million in Securitization Notes due no later than December 2020. Mandatory redemption is triggered if the debt service coverage ratio falls below 1.2:1 (currently 1.4:1).
• Legal Contingencies: A post-closing adjustment dispute exists with Cadbury regarding the beverage sale. Cadbury claims a $27.6 million adjustment due from Triarc, while Triarc claims a $5.6 million adjustment due to it. An arbitrator is being selected.
• Guarantees: Triarc guarantees up to $15.0 million of revolving credit borrowings for MCM Capital Group, Inc., an investee facing liquidity difficulties. Management believes payment is possible but not probable.
• Franchisee Issues: Sybra, Inc. (second largest Arby's franchisee) announced it cannot meet its development agreement, and the UK and Indonesian franchisees have been terminated, reducing future store commitments by 283.

Investor Verification Checklist

• Discontinued Operations Impact: Verify the sustainability of earnings by excluding the $38.5 million one-time gain from the beverage sale adjustment.
• Interest Expense Trajectory: Confirm the impact of the new Securitization Notes and the aircraft loan on future interest coverage ratios.
• Post-Closing Adjustment: Monitor the arbitration outcome with Cadbury regarding the $27.6 million vs. $5.6 million dispute.
• Franchisee Development: Assess the ability to replace lost store commitments from Sybra, UK, and Indonesia.
• Investment Portfolio Risk: Review the sensitivity of the $742 million investment portfolio to equity market declines and interest rate changes.